Citation: 2007TCC3
Date: 20070105
Dockets: 2005-309(IT)I
2005-323(IT)I
2005-324(TI)I
BETWEEN:
DIANE LÉPINE,
SOGÉCHARLES LTÉE,
CLAUDE GAGNON,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] These appeals were heard on common evidence
under the informal procedure.
[2] The facts assumed by the Minister of
National Revenue (the “Minister”) for the assessment of the Appellant
Claude Gagnon for the 2000 and 2001 taxation years are set out at
paragraphs 8 and 9 of the Amended Reply to the Notice of Appeal (“Reply”)
as follows:
[TRANSLATION]
8. . . .
(a) During the 2000 and 2001
taxation years, the Appellant was shareholder and director of
Sogécharles Inc., hereinafter called the “company,” which is a management
company for construction projects;
(b) In filing his income tax return for the
2000 taxation year, the Appellant did not report any T4 income from the
company;
(c) The expenses incurred by the company, for
the personal benefit of the Appellant, were not included in his income tax
return;
(d) We submit that the expenses incurred by
the company for the Appellant were for his personal benefit. (See appendices 1,
2, 3, 4, 5, and 6 attached hereto.)
FEDERAL PENALTY FOR NEGLIGENCE
9. The Minister determined that the Appellant
knowingly, or under circumstances amounting to gross negligence, made or
participated in, assented to or acquiesced in the making of, a false statement
or omission in the returns of income filed for the 2000
and 2001 taxation years as a result of which the tax that
he would have been required to pay, based on the information provided in the
returns of income filed for those years, was less than the amount of tax
payable for those years:
(a) Most of the disallowed expenses are
derived from the Appellant’s personal credit card statements and are paid by
the “company;”
(b) The Appellant is no stranger to tax
matters as he holds a degree in administration from the Université Laval and
has already been the subject of many tax assessments in the past;
(c) The Appellant is the sole director of the
“company” and should be familiar with the revenue and expenses of the
“company;”
(d) The Appellant signed the income tax return
of the “company;”
(e) The total amount of disallowed expenses
represents a significant percentage of the expenses claimed by the “company” in
2000 and 2001, that is 52.3% and 59.6%, respectively, and
represents 208% and 131.8% of the gross revenue for the 2000 and 2001
taxation years, respectively;
[3] The facts assumed by the Minister for the
assessments of the Appellant Sogécharles are set out at paragraphs 9 and
10 of the Reply as follows:
[TRANSLATION]
9. In establishing and retaining the
determination of losses for the 2000 taxation year and the reassessments
in issue for the 2000 and 2001 taxation years, the Minister assumed the
same following facts:
(a) The Appellant is a company whose activity
is the management of construction projects;
(b) Claude Gagnon, hereinafter
“Gagnon ,” is the sole director and a shareholder of the company;
(c) During the taxation years
ending on October 31, 2000 and 2001, the Appellant claimed
office expenses in the amount of $6,348 and $1,193, respectively,
for which no acceptable receipts were submitted;
(d) During the taxation year ending on
October 31, 2000 and 2001, the Appellant claimed maintenance and repair
expenses in the amount of $4,291 and $4,510, respectively, for
which no acceptable receipts were submitted;
(e) During the taxation year ending on
October 31, 2000 and 2001, the Appellant claimed advertising and
entertainment expenses in the amount of $4,095 and $4,876, respectively,
for which no acceptable receipts were submitted;
(f) With respect to the items contained in
paragraphs c, d, and e, the Minister concluded that the Appellant did not
incur those expenses for the purpose of earning income from a business
or property but that the expenses incurred were rather payment
of the shareholder’s personal expenses;
(g) During the taxation year
ending on October 31, 2000, horse expenses were disallowed, expenses which
consisted of the write-off of an account receivable from Ecuries Chakrika;
(h) The taxpayer was unable to prove that the account
receivable had already been previously included in the income;
(i) The disallowed expense was $3,000. The
deduction was disallowed pursuant to paragraph 20(1)(p) of the ITA as
the taxpayer was unable to provide the Minister with the documents and evidence
indicating that it made every effort to recover the amounts.
(j) During the taxation year ending on
October 31, 2001, the Appellant claimed professional fees in the amount of
$22,000 for which no voucher was submitted. What is more, the Appellant
was unable to determine what exactly the fees were charged for.
10. With regard to the reassessments of
January 19, 2004, for the 2000 and 2001 taxation years,
the Minister applied penalties pursuant to subsection 163(2) of the Act, in
respect of expenses not deductible from the income of the “company” on the
amount of $17,734 and $32,579, respectively, for the following
reasons:
(a) Most of the disallowed expenses are
derived from the personal credit card statements of the shareholder Gagnon;
(b) The expenses are paid by cheque by the
company and the cheques are signed by Gagnon and the nature of the invoice is
identified by Gagnon;
(c) Gagnon is no stranger to tax matters as he
holds a degree in administration from the Université Laval;
(d) Gagnon is the sole director
of the company and therefore is familiar with the revenue and expenses of the
company. He states that he claims all his expenses through the management
company and charges fees accordingly when the project works. However, he does
not have a list of expenses;
(e) Gagnon signed the income tax returns
of the company;
(f) The company did not provide any receipts
supporting the expenses claimed. Gagnon also mentions that he does not keep any
exhibits and that this is not how he wishes to utilize his time;
(g) The total amount of disallowed expenses is
52.3% of the expenses of the company in 2000 and 59.6% in 2001. The
disallowed expenses also represent 208% of the gross revenue of
the company in 2000 and 131.8% in 2001.
[4] As for the assessment of the Appellant
Diane Lépine for the 2001 taxation year, the facts assumed by the Minister
are set out at paragraphs 7 and 8 of the Reply as follows:
[TRANSLATION]
7. . . .
(a) During the 2001 taxation year, the
Appellant was shareholder of Sogécharles Inc., hereinafter called the “company,”
which is a management company for construction projects;
(b) In filing her income tax return for the
2001 taxation year, the Appellant did not report any professional fees received
from the company.
FEDERAL PENALTY FOR NEGLIGENCE
8. The Minister determined that the Appellant
knowingly, or under circumstances amounting to gross negligence, made or
participated in, assented to or acquiesced in the making of, a false statement
or omission in the returns of income filed for the 2001
taxation year as a result of which the tax that she would have been
required to pay, based on the information provided in the returns of income
filed for that year, was less than the amount of tax payable for that year:
(a) The professional fees received by the
Appellant from the company were paid in a lump sum of $22,000, unlike the other
types of income received by the Appellant during that year;
(b) The Appellant did not receive other income
of this kind in the 2001 taxation year, and so could not have mistaken that payment
for other income;
(c) The income represented 54.9% of the
Appellant’s total income for 2001;
(d) The Appellant filed her income tax return
for 2001 electronically;
(e) The Appellant did not provide the company
with an invoice for professional fees to justify the amount received;
(f) The Appellant has already been audited
before and should therefore be somewhat knowledgeable about tax matters.
[5] I do not refer to
the content of the Notices of Appeal as they were prepared by the accountant
and were very cryptic.
[6] There are two important issues in these appeals, the
characterization of the expenses claimed by Sogécharles and disallowed by the
Minister, and the $22,000 in fees received by Ms. Lépine.
[7] The expenses of
Sogécharles were disallowed by the Minister on the ground that they were the
personal expenses of the principal shareholder, Claude Gagnon. Given that
those expenses were paid by Sogécharles, the amounts were included in the
income of the Appellant Mr. Gagnon as a benefit conferred on the shareholder
under subsection 15(1) of the Income Tax Act (the “Act”). The
deduction of the fees paid to Ms. Lépine was also disallowed. The amount
was included in her income.
[8] The challenged expenses were produced in a
book of documents filed as Exhibit A‑1. It basically includes the
amounts shown on the personal credit card statements of Mr. Gagnon. There
is no invoice that supports the amounts claimed.
[9] Two written documents were filed at the request of the
Court, one explaining each of the expenses claimed by Sogécharles and the other
provided by the Respondent explaining why the expenses cannot be allowed.
[10] I am of the opinion
that the primary ground justifying the Respondent’s disallowance is reasonable. Mere entries on a credit card statement do not suffice to prove that the charges
are business expenses despite the taxpayer’s assertions and explanations to
that effect.
[11] Invoices or other acceptable proof that the
expense was in fact incurred for business purposes must be submitted. The mere
assertion of the taxpayer does not suffice. If it was just amounts spent at a
business the taxpayer deals with regularly it would not matter. But what is
involved here is a series of disparate amounts.
[12] Furthermore, with regard to the
entertainment expenses, too many of the expenses claimed are not, considering
their amount, typically receipts for meals consumed by more than one person and
are incurred in restaurants that are not settings generally considered to be
conducive to business discussions either. There are too many assertions that
undermine the overall credibility of the Appellant’s testimony. (See Chrabolowski
v. R., [2005] 1 C.T.C. 2054.)
[13] To conclude, despite
the valiant work done by the
Appellant’s counsel, I am not convinced, on a preponderance of evidence, that
the expenses claimed were business expenses.
[14] As for the $22,000 paid to the
Appellant Ms. Lépine as fees for professional services, the Respondent’s
auditor based her decision to disallow the payment on the fact that
Ms. Lépine did not provide an invoice. However, the evidence revealed that
Ms. Lépine was very involved in her husband’s business managing the building
and its landscaping. I am of the opinion that Sogécharles was entitled to pay her
fees for services rendered and that, accordingly, it was entitled to deduct
them.
[15] The Appellant Ms. Lépine did not include
those fees in her income tax return. She is willing to do so now and claims
that it was an oversight and that she trusted the accountant. She challenges
the imposition of the penalty. I find it hard to believe that she did not
notice that the income was missing from the tax return when it represented more
than half of her income for that year. Accordingly, the penalty should be upheld.
[16] The appeals of Sogécharles are allowed so as to
enable Sogécharles to deduct the $22,000 paid to Ms. Lépine in computing its
income. It may also deduct the expenses allowed by the Minister for fuel and
stamps in computing her income.
[17] As for the Appellant Mr. Gagnon, the amounts paid
by Sogécharles and whose deduction was disallowed, should be included in
computing his income as a benefit conferred on a shareholder.
[18] In each of the cases, the imposition of the penalty under
subsection 163(2) of the Act complies with the facts and the law.
Signed at Ottawa, Canada, this 5th day of January
2007.
“Louise Lamarre Proulx”
Translation certified true
on this 31st day of August 2007.
Daniela Possamai, Translator
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