Citation: 2007TCC412
Date: 20070815
Docket: 2006-2126(IT)I
BETWEEN:
HOLLY WILLISTON,
Appellant,
and
HER MAJESTY THE QUEEN,
For the Appellant: The Appellant herself
Counsel for the Respondent: Chantal Roberge
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered
orally from the bench on
January 26, 2007, in Montreal, Quebec.)
McArthur J.
[1] These appeals are for the taxation years
1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004 and 2005. The issues, in
summary, include the following:
(a) whether
the Appellant can deduct rental losses of $14,970 in the 1998 taxation year for
2030 Patricia Avenue, Montreal, and have a non‑capital loss from other
years to be applied from the 1999 taxation year to the 1997 and 1998 taxation
years;
(b) whether
the Appellant had additional revenues in the amounts of $9,515 in 1998, $8,640
in 1999, $15,031 in 2000, $6,211 in 2001 and $8,747 in 2002;
(c) whether
the taxable income of the Appellant for the 2003 taxation year was in the
amount of $29,050 and if the Minister could assess the 2003 taxation year
notwithstanding that the Appellant did not provide the income tax return for
the year as required;
(d) whether
the Minister correctly disallowed expenses in the amounts of $8,095, $23,958,
$23,842, $19,918, $15,004 for the taxation years from 1998 to 2002,
respectively; and
(e) whether the Minister correctly
assessed penalties.
[2] The Respondent had preliminary objections
to the effect that the years 1997, 2004 and 2005 were not properly before the
Court and I shall deal with these now. I agree with the Respondent that the
Appellant cannot appeal the 1997 taxation year because she did not comply with
subsection 169(1) of the Income Tax Act which provides in part:
169(1) Where a taxpayer has served notice of
objection to an assessment under section 165, the taxpayer may appeal to the
Tax Court of Canada to have the assessment vacated or varied …
(a) …
but no appeal under this section may be instituted after the
expiration of 90 days from the day notice has been mailed under section
165 ...
There is provision in the Act to make
application for an extension of time which the Appellant did not do. The
Appellant submitted what in effect was an estoppel argument. Her argument fails
as estoppel does not supersede the legislation which is clear. The acts of the Minister's
officials cannot change the law. The time limit to appeal from the assessment
for the 1997 taxation year was one year and 90 days following the Minister's
confirmation of assessment. The assessment was confirmed on April 5, 2001. However,
the Appellant appealed on June 26, 2006, well beyond the legal time limits.
[3] The Minister assessed the 2004 taxation
year on March 27, 2006. The Appellant had not filed a notice of objection, nor
requested an extension of time to do so in compliance with subsection 165(1) of
the Act, and her purported appeal for 2004 is therefore quashed. Further, the appeal for the 2005 taxation year is
also quashed and I agree with the Minister that he had not assessed the
taxation year pursuant to subsection 152(1) of the Act and therefore,
a valid Notice of Objection or a Notice of Appeal cannot be filed.
[4] The Minister assessed the Appellant's 1998
taxation year beyond the three‑year limitation period. I have no
difficulty in permitting the assessment beyond the normal period pursuant to
subsection 152(4), in that the Appellant made misrepresentations attributable
to neglect or carelessness, although I do not find there was wilful default or
fraud. The Appellant had attempted to deduct the cost of items which were
clearly not connected to the telemarketing business, including those listed in
Exhibit R‑14, a sink from Reno Depot, unrelated bingo tickets from Obonsoins,
one meal only from a restaurant, along with clothing which was obviously
personal.
[5] During the hearing, I found as a fact that
the Appellant was in the business of sales through telemarketing as an
independent contractor and not an employee for the taxation years 2000, 2001
and 2002. I believe the Appellant had been in telemarketing in the Montreal area since the late 1980s.
[6] The Appellant maintains at length in her a
Notice of Appeal that in her dealings with CRA, she endured a continuing
pattern of harassment and denial of rights as a Canadian citizen. The Minister's
auditor, Mr. Roy, was examined in-chief comprehensively and was cross‑examined
by the Appellant. I found no evidence of harassment or denial of rights. To the
contrary, Mr. Roy presented a very thorough report. In any event, my
jurisdiction is limited to reviewing the correctness of the assessments and I
need not make any finding with regard to the allegations of harassment.
[7] The real property at 2030 Patricia Avenue was owned by the Appellant's common law
partner, Edward Hopley. It was an eight-unit apartment building in which the
Appellant and Mr. Hopley occupied three of the eight units. I find that she had
no legal interest in the property and that she cannot deduct expenses as a 50%
owner. The Supreme Court of Canada has dealt with matrimonial issues and
matrimonial property upon separation and divorce, which is not the Appellant’s situation in this case. Therefore, the
Appellant cannot benefit from the losses under the Income Tax Act.
[8] For the reasons given by counsel for the
Respondent, the appeals for 1998 and 1999 are dismissed since the Appellant did
not meet the criteria in paragraph 18(12)(a) of the Act, which
reads in part:
18(2) … in computing an individual’s income from a business for a
taxation year,
(a) no amount shall be deducted in
respect of ... a “work space” of a self‑contained domestic establishment
in which the individual resides, except to the extent that the work space is
either
i) the individual's principal place of business, or
ii) used exclusively for the purpose of
earning income from business and used on a regular and continuous basis for
meeting clients, customers, or patients of the individual in respect of
business;
(b) …
Up to the year 2000, the Appellant's primary business
workplace was in the premises of the telemarketing owner. She used its
telephone, desk and office equipment. She did maintain an office at home, but
it was not used exclusively for the marketing business. She used it for her
husband's rental property up to at least 1998, and other sales efforts apart
from telemarketing. I have no doubt that during those years her primary and
principal place of business was the premises of the telemarketing owner for whom
she was working at the time.
[9] I will now deal with the taxation years
2000, 2001, 2002, beginning with additional revenues added by the Minister to
the Appellant's income of $15,031, $6,211 and $8,747, respectively. The Minister
added these amounts based on what he considered to be unexplained bank deposits
to the Appellant's account. Since the Appellant's partner was not working
during those years, the Respondent concluded that the only deposits in the
account would have come from the Appellant. She conceded some amounts, but
stated that some of the deposits came from her unemployed partner, Mr. Hopley,
who deposited the proceeds from the sale of tools from time to time, together
with other amounts. Mr. Hopley had been in the auto repair business prior to 1998,
and closed shop for health reasons. Both he and the Appellant testified that he
also deposited amounts from lottery or casino winnings and borrowed funds into
the relevant account. All of this was unsubstantiated, but I do accept that
some of the money added to the Appellant's income by the Minister had been
deposited by Mr. Hopley.
[10] Exhibit A‑6 is a spreadsheet entitled
"Income Rebuttal", submitted by the Appellant. She indicated that Mr.
Hopley made deposits of $11,109 in 2000, $4,754 in 2001 and $7,006 in 2002. I
accept that a reduced amount of $7,416 in 2000, $3,300 in 2001 and $5,000 in
2002 were Mr. Hopley's deposits, and were not correctly added to the
Appellant's income, reducing her income for the 2000 taxation from $46,347 to
$38,931, in 2001, from $35,965 to $32,665 and in 2002, from $34,747 to $29,747.
[11] I will now deal with expenses for the three
years which I consider are in issue. I have determined that the Appellant was
not an employee, but an independent contractor. In the taxation years 2000, 2001
and 2002, she used a home office space exclusively to operate her business,
complying with subsection 18(12). I do not believe it serves a useful
purpose to analyze the claim for expenses in detail as set out on the last page
of the auditor's report. This is an informal procedure appeal, it is not an
audit and I am certainly not an auditor. With the voluminous documents and oral
evidence provided, I have come to conclusions, at time somewhat arbitrarily,
that I feel more reflective of the commercial reality than the amounts
presented. Many of the expenses claimed are disallowed, but the Appellant, no
doubt, had legitimate business expenses that should be recognized pursuant to
subsection 18(1) of the Act.
[12] Dealing with the expenses in some
generality, I find the Minister disallowed expenses claimed by the Appellant of
$23,842 in 2000, $19,119 in 2001 and $15,004 for 2002. Commencing with the home
office, I conclude that $400 per month, or $4,800 annually, will be allowed for
the use of home office. This includes, among other items, the cost of the
office space, which could be termed as rent, hydro, telephone, advertising,
business taxes, fees, delivery, insurance, maintenance and repair, meals and
entertainment and miscellaneous office expenses. As referred to earlier, no
rental losses are allowed in any event. I do not believe rental losses were
claimed for the three relevant years. The Appellant had no legal interest in
the rental real estate which was owned by Mr. Hopley until late 1998, when it
was seized by the Laurentian Bank, which held the mortgage that was in default.
I further allow the sum of $2,000 per year for the three years, 2000, 2001 and 2002
to cover all other business expenses.
[13] In these appeals, I find that the late filing penalties will
remain as assessed. The Appellant has not seriously contested the dates for
filing income tax returns as set out on page 2 of the Reply, which I accept. I
have no discretion under subsection 162(1) of the Act after it is
established that the returns were not filed as required by subsection 152(1). However,
the gross negligence penalties under subsection 163(2) are to be deleted. I
find that the Appellant was basically honest although misguided. She was
aggressive in her expense claims but on balance, she did not intentionally act
to not comply with the law. In Venne v. The Queen, 84 DTC 6247, Strayer,
J. of the Federal Court, Trial Division, stated in part:
With respect to the possibility of gross negligence, I
have some difficulty to come to the conclusion that this has not been
established. "Gross negligence" must be taken to involve greater
neglect than simply a failure to use reasonable care. It must involve a high
degree of negligence tantamount to intentional acting, indifference as to
whether the law is complied with or not. I do not find that high degree of
negligence in connection with the misstatements of business income. …
I find this comment applies equally to the Appellant
in the present circumstances and, therefore, penalties pursuant to subsection
163(2) only are not to be imposed.
[14] In summary, the purported appeals for the
taxation years 1997, 2004 and 2005 are quashed. The appeals for 1998 and 1999, are
dismissed in that the Appellant did not have legal ownership of 2030 Patricia Avenue and thus, she cannot claim expenses for a
home office pursuant to subsection 18(12) for those years. The amounts have
been varied for 2000, 2001, 2002 as referred to earlier and those appeals are
allowed. The Minister correctly determined and assessed the income of the
Appellant in the amount of $29,050 for the 2003 taxation year in accordance
with subsection 152(7) of the Act and this appeal is also dismissed. Further,
the penalties pursuant to 163(2) are deleted, but the late filing penalties
remain as assessed.
Signed at Ottawa, Canada, this 15th day of August, 2007.
“C.H. McArthur”
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