Citation: 2008TCC214
Date: 20080616
Docket: 2007-3855(IT)I
BETWEEN:
JEAN-SÉBASTIEN SIMÉON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
AMENDED REASONS FOR JUDGMENT
Tardif J.
[1]
This
appeal pertains to the 2002 and 2003 taxation years.
[2]
The
issue to be decided is whether, for the 2002 and 2003 taxation years, the Minister
of National Revenue (the Minister) was justified in disallowing
(a) the amounts of $738 and $767 deducted
by the appellant as carrying costs;
(b) the amounts of $3,616 and $5,618
deducted by the appellant as employment expenses; and
(c) the amounts of $2,374 and $9,100
deducted by the appellant as vehicle expenses.
[3]
In making
the initial assessments, on May 5, 2003, for the 2002 taxation year, and on April
19, 2004, for the 2003 taxation year, which assessments were confirmed on
July 31, 2006, after the appellant formally waived application of the
normal reassessment period, the Minister relied on the following assumptions of
fact:
[TRANSLATION]
(a)
In the course of the
taxation years in issue, the appellant worked for Industrial Alliance Insurance
and Financial Services (hereinafter "the employer"). (admitted)
(b)
According to the
Minister's records,
(i)
the appellant lived
at 8 Nancy Street in Victoriaville, Quebec, starting in 1995; (admitted)
(j)
on June 13, 2002, the
appellant moved to 28 Debilly Street in Victoriaville, Quebec. (admitted)
(c) The appellant was audited by the
Minister's auditor (hereinafter "the auditor"); (admitted)
CARRYING CHARGES
(d) For the 2002 and 2003 taxation years, the
appellant claimed, inter alia, the amounts of $738 and $767,
respectively, as carrying charges. (denied)
(e)
The amounts referred
to in the preceding subparagraph pertained to expenses associated with a
personal line of credit from the National Bank. (denied)
(f)
The auditor therefore
disallowed the amounts of $738 and $767 claimed by the appellant for the 2002
and 2003 taxation year, respectively. (denied)
EMPLOYMENT EXPENSES
(g)
For each of the
taxation years 2002 and 2003, the appellant submitted to the Minister a
Form T2200 (Declaration of Conditions of Employment) duly signed by a
representative of the employer. (admitted)
(h) The Form T2200 stated that
(i) under
the terms of his employment contract, the appellant was required to pay
the expenses incurred in the performance of his duties, (admitted)
(ii)the appellant was normally required to
work away from the employer's place of business or in different places, (admitted)
(iii)
the appellant did not
receive any allowance from his employer, (admitted)
(iv)
the appellant had to
incur all automobile and other expenses, (admitted)
(v)
the appellant was
paid, wholly or partly, by commission or other similar amount based on the
volume of sales made or contracts negotiated, (admitted)
(vi)
the appellant was
sometimes required to be away for at least 12 hours from the municipality
or metropolitan area of the business where he normally reported for work, (admitted)
and
(vii)
the appellant had to
purchase supplies that he used directly in his work. (admitted)
(i) Following his audit, the auditor
disallowed the following amounts claimed by the appellant against his
commission income (see the Appendix for details): (denied apart from
the amounts)
|
Description
|
2002
|
2003
|
|
Employment expenses
|
$3,616
|
$5,618
|
|
Vehicle expenses
|
$2,374
|
$9,100
|
|
|
$5,990
|
$14,718
|
Employment expenses
(j)
The appellant
incurred neither the $3,616 that he claimed as employment expenses for the 2002
taxation year, nor the $5,618 that he claimed as employment expenses for the
2003 taxation year. (denied)
Motor vehicle expenses
(k) The appellant owned a 1993 Mazda 626. (admitted)
(l) On April 21, 2000, the appellant leased a
2000 Subaru Outback ("the Subaru") for 48 months. (admitted)
(m)
The monthly payments
on the Subaru were $657.96 (admitted)
(n)
On November 5, 2003,
the appellant purchased an unrepaired Audit TT that had been in an accident (hereinafter
"the Audi"). (denied)
(o)
The price paid for
the Audi, including GST and PST, was $31,056.75. (admitted)
(p)
The appellant kept no
driving log for the taxation years in issue. (admitted)
Fuel
(q)
The $1,388 and
$1,227 claimed as fuel expenses for the 2002 and 2003 taxation years,
respectively, were personal expenses of the appellant's. (denied)
Maintenance
and repair
(r) The $1,544 and $2,716 claimed as motor
vehicle maintenance and repair expenses for the 2002 and 2003 taxation years,
respectively, were not incurred by the appellant for the purposes of earning
income from an office or employment. (denied)
(s)
The total of $4,228
claimed as maintenance and repair expenses for the Audi in the course of the
2003 taxation year was a capital expenditure because the money was used in
order to fix up the vehicle and was not for normal maintenance. (denied)
(t)
The auditor estimated
that the vehicles' personal-use percentage for the 2002 and 2003 taxation years
was 20%. (denied)
(u)
Consequently, the
auditor calculated that the personal-use amounts for the vehicles in the 2002
and 2003 taxation years were $2,131 ($10,657 x 20%) and $3,284 ($16,419 x
20%) respectively. (denied)
[4]
After
being sworn in, the appellant admitted to subparagraphs 9(a), (b)(i) and (ii), (c),
(g), (h)(i), (ii), (iii), (iv), (v), (vi) and (vii), (k), (l), (m), (o) and (p).
He denied the contents of the other subparagraphs, namely 9(d), (e), (f), (i), (j),
(n), (k), (r), (s), (t) and (u).
[5]
The appellant
explained that he had been working in the financial field for several years
when he received the assessments. He describes himself as a financial planner,
and it appears that he mostly represented a company that was primarily engaged
in the sale of life, disability, salary and other insurance policies.
[6]
During
the periods in question, the appellant performed managerial functions and was
also responsible for a few agents. In addition to being the resource person, he
promoted sales by the team for which he was responsible.
[7]
His
testimony and evidence were a response to the contents of the voluminous file
prepared by the respondent in support of the assessments that he appealed.
[8]
The
carrying charges that were disallowed constituted the first issue that the appellant
addressed: they amounted to $738 for the 2002 taxation year and $767 for the
2003 taxation year.
[9]
With
respect to this issue, the appellant said that he had made efforts to obtain
certain documents capable of validating his allegations. Since he was
purportedly unable to obtain such documents, he essentially argued that he
withdrew $10,000 from his line of credit and invested it.
[10]
He
said that the interest should be deductible because the amount was taken from
his personal line of credit but was used for investment purposes. No evidence
whatsoever was adduced in connection with the date or the nature of the
investment.
[11]
In
support of his claims, the appellant asserted several times that the Minister
had initially refused the deduction of far more interest. He finally got some
of what he wanted after submitting a relevant document confirming the purpose
of his hypothecary loan.
[12]
Based
on this example, the appellant sought to demonstrate, by analogy, that the same
process was at work here. He did not understand why his explanations, which
were essentially valid, were not accepted, since he had established the merits
of his allegations regarding another matter.
[13]
The
second issue that the appellant addressed was the disallowed expenses of $5,990
for the 2002 taxation year and $14,718 for the 2003 taxation year.
He submitted that he was entitled to deduct these expenses because they were
incurred to earn income from employment.
[14]
The appellant
provided all sorts of explanations which were rather general in nature. Among
other things, he explained, and repeated, that he had to launch all sorts of
promotional activities in order to stimulate sales by the people who were under
his wing.
[15]
Several
invoices disallowed by the Minister were cited. These included purchases from
the Société des alcools du Québec, theatre tickets, golf event tickets, a home
theatre purchase, a DVD player, bottles of wine and other expenses that he said
had been paid for with his credit card so that he could obtain written evidence
of his purchases.
[16]
The appellant
argued that all these purchases were ultimately made with a view to stimulating
the sales made by his business, and were part of various promotions and
contests.
[17]
He
specified that the items were bonuses, prizes and gifts given out on various
occasions as part of promotional activities designed to stimulate sales.
[18]
Among
other things, he said that it was necessary to launch such promotional campaigns
in August and September of each year in order to motivate the representatives,
who often worked more slowly after returning from their vacations.
[19]
The
explanations given in order to explain that the disallowed expenses were valid
were essentially very general oral explanations that were often confused and
ambiguous and were never validated or confirmed by specific facts, relevant
documents or other witnesses.
[20]
Lastly,
the appellant explained that he leased a Subaru that he used for his employment,
and that when that lease agreement expired, he purchased an Audi TT.
[21]
He
explained that the vehicle in question had been imported from the United States
and was purchased as a severely damaged vehicle (SDV).
[22]
Although
the vehicle was described as having been only slightly damaged, the appellant had
to make many repairs or have them carried out by others. In fact, he admitted
that the vehicle had been considered a write-off, and that it had to be thoroughly
checked by the Société de l’assurance automobile du Québec before it could be licensed
in the province.
[23]
He
therefore deducted the amounts spent on repairs as though they were regular
maintenance expenses, in the same category as fuel purchases, or tire and brake
pad replacements. In the Minister's submission, the amounts in question should
have been capitalized as part of the vehicle's purchase cost.
[24]
The
cross-examination of the appellant sought primarily to show a certain number of
things that were obviously intended to impeach the credibility of the appellant's
allegations.
[25]
Among
other things, the appellant admitted that he had deducted restaurant expenses
even though it was clear, simply from looking at the bills, that they were
essentially personal expenses. He had also deducted the cost of a hotel room
and meals that had benefitted himself and his family only.
[26]
The
evidence has shown that the appellant was an avid consumer of car tires; he was unable to provide reasonable explanations that would account
for how and why these expenses were related to income-generating activities.
[27]
The appellant
admitted that several components of the assessments that he appealed are valid,
because he did not refer to them in his testimony. The appellant's
evidence was essentially oral, and consisted of factual allegations that
undermined his credibility.
[28]
I am
referring, among other things, to an invoice that clearly states [TRANSLATION]
"Reminder to replace timing belt"; the appellant claimed that the
timing belt in question was not the one referred to in the invoice. In other
words, he claimed that the mechanic was reminding him to replace the timing
belt on a vehicle other than the one that the appellant had entrusted to him.
[29]
Certain
invoices, notably invoices from mechanics doing business as "Les spécialistes",
do not describe the vehicle that was serviced.
[30]
The appellant
had no log containing the details of his daily work-related trips, and he did
not provide a list of clients or a copy of his day planner, even though he was
asked to provide the documents in question during the audit. In fact, he did
not refer to such records in his evidence.
[31]
Also
at issue were an amount of $1,200 for which he obtained an $878 reimbursement;
a telescope purchase; an invoice dated June 24 (St‑Jean‑Baptiste Day);
and a bill for expenses that were clearly incurred for personal and family
purposes at Val-Cartier village.
[32]
He
said that he had to reimburse certain clients in cash, which explained why he
could not produce receipts substantiating such transactions.
[33]
He
was unable to explain why he had kept the serial number of the home theatre system
that was purchased and offered for promotional purposes. Is it possible that
the sound system in question was actually purchased for the sole benefit of the
appellant and his family? He also asserted, in lieu of adequate explanations,
that certain expenses had been shared with co-workers who did not testify.
[34]
The respondent,
for her part, also called a witness: Guylaine Fraser, who was responsible for
the appellant's file at the objection stage. Ms. Fraser briefly explained
the work that was done, emphasizing the reasons and grounds based on which
certain expenses were disallowed.
[35]
For
example, she disallowed certain gasoline expenses. Her decision in this regard
was based on a table prepared by Transport Canada to determine the fuel
consumption of vehicles comparable to the appellant's, and on a table showing
gasoline prices in the appellant's area.
[36]
The appellant's
challenge essentially amounted to his arguing that the data supplied by Transport
Canada were unrealistic and that his vehicle's fuel consumption was much
greater than what Transport Canada's publication stated.
[37]
The
Court intervened to point out to the appellant that he bore the burden of
proof, and that this burden could not be met merely by pointing out a few
errors in the opposing party's evidence with a view to showing that the
assessment was neither well-founded nor justified.
[38]
It
is not sufficient for the appellant to assert that an expense was disallowed
without valid cause. One must be able to provide explanations and relevant
documents that leave no doubt as to their admissibility, and, above all, their plausibility
and relevance.
[39]
Attacking
disallowed expenses by claiming that they should have been accepted and relying
on essentially oral explanations is a risky endeavour and certainly
demonstrates temerity, particularly for a self-described financial advisor. In the
instant case, the temerity is particularly striking because the evidence has
shown that several of the expenses claimed were plainly unjustified.
[40]
Furthermore,
a person who calls himself a financial planning advisor or consultant needs to
have a modicum of discipline with respect to the management of his own affairs.
[41]
To
rebut the Minister's allegations by means of dubious, incoherent, vague and
summary oral explanations certainly does not lay a reasonable foundation for a
challenge, especially where the person concerned acknowledges that several of
the disallowed expenses were indeed personal expenses that were properly
disallowed.
[42]
Moreover,
in claiming that mistakes had been made, the appellant failed basically to discharge
his obligation to meet his burden of proof, as he was not in possession of even
a few documents, such as the documents requested as part of the audit, namely,
a log recording the use of the vehicle, a list of clients, and a day planner.
[43]
With
respect to the expenses that were disallowed as maintenance expenses but
characterized as capital expenses — a very important component — I find, on a
preponderance of the evidence, that the Minister's approach is completely
justified.
[44]
Indeed,
the alignment, tire replacement, shock absorber and brake-related expenses can
sometimes be considered regular maintenance expenses, but when they are incurred
to bring a vehicle up to Quebec's roadworthiness standards, it is another
matter entirely.
[45]
The
vehicle in question was purchased after U.S. authorities had decided that it
was no longer roadworthy because it had been in a serious accident.
[46]
The
vehicle had to undergo considerable repairs (though the appellant claimed the
repairs were few) as well as a thorough inspection before it could be
registered so that it could be driven on the province's roads.
[47]
In
this regard, there is no doubt that certain expenses characterized as regular maintenance
expenses took on an entirely different dimension in the context of the overhaul
of the vehicle in question. These were capital expenditures because they were
in addition to the vehicle's purchase price. Such expenditures cannot be
treated like regular maintenance expenditures even if they are to replace parts
in accordance with the vehicle's maintenance schedule.
[48]
In
order to discharge his burden of proof, the appellant had to submit credible,
reasonable and plausible evidence, supported or validated by appropriate
vouchers, testimony or documents.
[49]
Not
only did he not do that, he essentially contested the merits of the
assessment's components by means of oral explanations that were often confused
and incomplete, but also, in certain respects, completely implausible.
[50]
The appellant
was far from being a poorly informed and unaware taxpayer who has no notion of
what a supporting document is. In fact, he claimed to be a financial planning
advisor.
[51]
Given
this context, the appellant should have demonstrated a minimum level of
vigilance in the handling of his business expenses, and it is clear that he did
not do so.
[52]
On
the contrary, the evidence shows that the appellant acted negligently and with
temerity. The appellant, a highly articulate man, thought that he was above the
most basic rules of sound financial management.
[53]
In
light of the appellant's testimony, I believe that he deliberately chose
equivocation and confusion in the belief that anything could be justified based
solely on the nature of his work.
[54]
Unfortunately
for him, and fortunately for the principle of fairness in taxation, an expense
must not only be explained and justified, but also proven by means of relevant
documents. Such evidence can be provided by means of a log book, day planner, a
client list, and adequate invoices and witnesses.
[55]
The
appellant chose to rely solely on his own testimony, which was deficient,
incomplete and implausible. He must bear the consequence, which, in the case at
bar, is the rejection of all his allegations.
[56]
For
her part, the respondent argued that she was being accommodating when she
accepted the full amount of certain expenses in support of which some evidence
or initial documentary proof had been provided, even though the provisions of
the Act, notably section 67.1, would have permitted her to accept only 50%
of such expenses. This is an argument that I cannot take into account.
[57]
However,
the respondent made admissions with respect to certain expenses, the details of
which are as follows:
|
Category
|
Nature
|
Amount
|
Page
|
|
Assessment
|
Inadequate voucher (MasterCard statement)
|
$51.00
|
p. 2
|
|
Entertainment
expense
|
Motel Classique
Bistro Le Coq Noir
|
$99.00
$104.90
|
p. 2
p. 2
|
|
Office
supplies
|
Les affaires newspaper
(MasterCard statement)
|
$103.00
|
p. 2
|
|
Advert'g and
promotion
|
Alain R. Bergeron (Fast Start
-- President's contest)
|
$97.00
|
p. 3
|
|
2003 TAXATION YEAR
|
|
Category
|
Nature
|
Amount
|
Page
|
|
Assessment
|
Inadequate voucher (MasterCard statement)
|
$68.00
|
p. 4
|
|
Training
|
Three MasterCard statements
|
$140.00
|
p. 5
|
|
Office supplies
and expenses
|
Bureau Services Financiers
$132 + $53 + $185 + $185 + $260
=
|
$815.00
|
p. 6
|
|
Advert'g and
promotion
|
Reimbursement – recruitment
$10.56 $ + $50.33 + $9.92 =
|
$70.81
|
p. 7
|
|
TOTAL FOR 2002
|
$454.90
|
|
TOTAL FOR 2003
|
$1,093.81
|
[58]
I
accept the admissions, and allow the appeal so that a reassessment,
in keeping with the admissions, can be made on the basis that the
deduction of the aforementioned expenses should have been allowed when the
reassessments were made. There will be no award as to costs.
Signed at Ottawa, Canada, this 16th day of June
2008.
"Alain Tardif"
Translation certified true
on this 13th day of July 2010.
Monica F. Chamberlain, Translator
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